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Division sees COVID production impacts
Kristen Nelson Petroleum News
COVID-19 will have both short term and long term impacts on Alaska’s oil and gas production, according to slides prepared for a June 5 presentation to Commonwealth North’s Energy Action Coalition by Alaska Department of Natural Resources, Division of Oil and Gas Deputy Director Justin Black.
Modeling assumptions for the low oil price scenario for the spring production forecast changed as a result of COVID-19, the slides say. The low price forecast in February-March for fiscal year 2020 was production of 519,011 barrels per day; in April, that had dropped to 506,143 bpd.
For fiscal year 2021, the February-March low price forecast was 512,430 bpd; in April it was 479,729 bpd.
Fiscal year 2020 ends June 30; fiscal year 2021 begins July 1.
Since BP and ConocoPhillips announced rig laydowns, modeling assumptions now include no new wells drilled through the end of the year, April through December, with rig laydowns the main drivers for the expected short term production decline, which is now estimated at 5.2% from FY2020 to FY2021.
The price used continues to be the state’s official spring 2020 forecast price.
Exclusions Some things were excluded, the presentation says, and they might make the estimated production impact from COVID-19 optimistic. The first is proration and production cut decisions - these are factors which will be considered by the Department of Revenue, not by DNR.
(Alyeska Pipeline Service Co. prorated production for portions of April and May in response to market conditions and ConocoPhillips cut its Alaska production for June by 100,000 bpd.)
The other exclusion that could make the projection optimistic is the impact of base production management activities, work which impacts rates of production.
Other factors Other factors which could impact the production outlook include that some operators had drilled some 50% of their planned wells for fiscal year 2020 prior to rig laydown.
The division’s presentation also noted that the rig laydown suggests no new rig workovers through the end of 2020, and lacking that work, and other base management work, the COVID-19 impacted production outlook could be optimistic.
While safety-related or regulatory-mandated work will not be deferred, deferrals on discretionary but rate-impacting work and potentially on planned maintenance turnarounds and some unplanned work could also impact production numbers.
While cost-cutting efficiency gains are a possibility, the division said much of that had already been done in the last three years due to price volatility.
There could also be an impact from ramp-up on base management and development activities going into 2021.
Historical perspective Historically, production from new wells mitigates production decline, and laydown of rigs will exacerbate North Slope legacy field decline.
While it is uncertain how much higher decline will be, on average one year of drilling has mitigated first decline by some 5%.
The division said DNR’s “illustrative outlook on production due to reduction in rig activities estimates” a decline of some 5.2% for FY2020 through FY2021, with that estimate including “high levels of uncertainty.”
The analysis does not include any non-public information and uses public statements as of April 28 along with modeling assumptions, with the assumption that 2020 drilling will not exceed baseline development for all Slope operators over the recent past.
In the short term, the stop-work initiative by operators based on COVID-19 and low prices will be the main driver, with an estimated drop of some 13,000 bpd for FY2020 compared to the spring 2020 forecast developed in February, and a drop of some 32,000 bpd for FY2021.
For the long term, a downward adjustment of prices “is expected to affect economic viability of projects planned to come online in the medium to long term,” with the analysis looking only at production impacts through year end 2021.
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